This blog is a commentary on contemporary business, politics, economics, society, and culture, based on the values of Reason, Rational Self-Interest, and Laissez-Faire Capitalism. Its intellectual foundations are Ayn Rand's philosophy of Objectivism and the theory of the Austrian and British Classical schools of economics as expressed in the writings of Mises, Böhm-Bawerk, Menger, Ricardo, Smith, James and John Stuart Mill, Bastiat, and Hazlitt, and in my own writings.

Monday, February 10, 2014

Comments in Response to Marxism-Inspired Article in New York Times

The main article on page one of today’s (February 10, 2014) New York Times is inspired by Marxism. The article attempts to
deny that raising wages reduces
employment. The substance of its denial is the mere fact that employers make this
claim. The Times’ position is that if
capitalists claim something, it can’t be true—because it is capitalists who claim
it. The Times and its staff are
wedded to the proposition that capitalism is a system functioning exclusively
in the interests of a handful of capitalist exploiters and against the
interests of the overwhelming majority of mankind (think of the “1%” vs. the “99%,”
which is the current popularization of this dogma). This belief is assumed to
be true beyond any possible question and any attempt to challenge it, it is believed,
can only reflect dishonesty on the part of whoever dares to do so and should
immediately be ignored as soon as the slightest connection can be found to the
interests of capitalists.

More importantly,
I’ve managed to get The Times to
publish two comments of mine relevant to the article. My comments appear on The Times website, accompanying the
online version of the article. Each comment can be found by clicking on its
title.

One of the most fundamental principles of economics is that,
other things being equal, the higher is the price, the lower is the quantity
demanded. Applied to wages, this means that, other things being equal, the
higher is the wage, the smaller is the number of workers employed.

The truth of these propositions is not diminished in any way
by the fact that interested parties use them. In this case the interested
parties are using a scientific truth, just as a patient with an interest in
saving his life relies on the scientific truths established by medical science.

Empirical studies showing wage increases without decreases
in employment, indeed, wage increases accompanied by actual increases in
employment, do not invalidate the fact price (wage) and quantity demanded are
inversely related. The relationship holds OTHER THINGS BEING EQUAL. If over the
same period of time that wages rise, the quantity of money and volume of spending
in the economic system also rise, the same or a larger number of workers can be
employed. However, if their wages did not rise, or rose by less, the number of
workers employed would have increased by still more. In this case, the
unemployment that results from a higher wage is to be understood as being in
comparison with the greater amount of employment that would have existed in the
absence of the wage increase.

A fundamental fact to keep in mind is that any given amount
of spending can buy more the lower are prices/wages. This is a fact of
arithmetic.

Whoever is concerned with raising the standard of living of
the average wage earner needs to realize that that standard of living is not
determined by the height of the worker’s money wages. What it is determined by
is his wages RELATIVE TO THE PRICES he must pay as a consumer. Before the
introduction of the Euro, every Italian worker earned millions every
year—millions of almost worthless Lira. Despite being multi-millionaires, the
standard of living of Italian workers was very low, because prices were
extremely high.

The standard of living of all workers taken together is simply
not increased by increasing their money wages. What increases money wages
across the board is basically just an increase in the quantity of money and
volume of spending in the economic system. But that same increase operates
equally to raise prices, thereby preventing any rise in the general standard of
living.

What allows the workers’ standard of living to rise is
improvements in the output per worker. The same number of workers, or a larger
number of workers, each on average producing more, implies an increase in the supply
of consumers’ goods relative to the supply of labor, and thus, as far as it
goes, a fall in prices relative to wages.

However
counterintuitive it may be, the rise in the workers' standard of living comes
about not by virtue of the workers earning more money, but by virtue of the
rise in output per worker holding the rise in prices below the rise in wages.